Trade Circle Enterprise LLC, In re [2014] 42 taxmann.com 287 (AAR)

 Section 245N – 'Transaction' or ‘proposed transaction’ should not be mere 'intention' – Applicant intends to set-up 100% subsidiary in India which further intends to set-up a partnership consortium with another Indian company, who shall take up infrastructure project – Applicant sought ruling on allowability of deduction under Section 80IA(4) to partnership consortium – Held, 100% subsidiary has to exist in reality and partnership consortium has to be set up in order to constitute a ‘transaction’ or ‘proposed transaction’ u/s 245N

Trade Circle Enterprise LLC, In re [2014] 42 taxmann.com 287 (AAR)

Facts

1.     The applicant, a company registered in UAE, engaged in the business of developing and investing in infrastructure and real estate sector intends to invest in a 100% subsidiary company in India.

2.     The Indian subsidiary company intends to set up a consortium by way of partnership firm under the Partnership Act, 1932 with another Indian Company namely, MEP Infra Private Limited (MEPPL).

3.     The consortium proposes to acquire the undertaking of MEPPL which is engaged in the business of operating and maintaining 20 road bridges in Mumbai and in consideration collects toll at five Mumbai entry points pursuant to a contract dated 19th November, 2010 entered into with the Maharashtra State Road Development Corporation, a Corporation (MSRDC) owned by the Government of Maharashtra (‘Undertaking’) for a period of 16 years.

4.     The present Undertaking is eligible for tax deduction of 100% of its profits and gains from such undertaking for a period of 10 consecutive assessment years out of the 20 assessment years as per provisions of Section 80IA(4)(i) of Income tax Act, 1961 (‘Act’). MSRDC and MEPPL have not claimed any income tax benefit under the said section.

5.     The above transaction is expected to be completed by the month of December, 2011, subject to necessary approvals.

6.     The applicant sought an advance ruling on the eligibility of claim of benefits of Section 80IA(4)(i) deduction in the hands of partnership firm and the period thereof.

7.     The Revenue objected to admission of the application u/s. 245R(2) stating that the questions posed before the AAR do not fall under any of the clauses of section 254N of the Act.

Ruling

1.     The Hon’ble AAR held that in order to bring in the question within the scope of Section 245N of the Act, there has to be either a transaction undertaken or proposed transaction to be undertaken by the non-resident applicant. This is not the case in the present application. “Transaction” or “proposed transaction” are not the same as mere intention.

2.     It observed that in present application, the applicant intends to invest in a 100 per cent subsidiary company in India which in turn intends to set up a consortium by way of partnership firm with the Indian company and the partnership firm propose to acquire the undertaking of the Indian company which is stated to be eligible for deduction under Section 80IA of the Act. It held that the 100 per cent subsidiary company has to exist in reality and the partnership firm has to be set up in order to make transaction or proposed transaction of
the applicant with the Indian company/subsidiary.

3.     It further held that the question relates to proposed setting up of the subsidiary and the partnership firm with the Indian company and as to whether the subsidiary or the partnership firm will be eligible to 100 per cent deduction under Section 80IA of the Act. It observed that the ruling in the case of Umicore Finance vs. CIT (318 ITR 78) was also not applicable.

4.     Accordingly, the Hon’ble AAR agreed with the stand of Revenue that the questions posed do not fall under the purview of the Authority.